KPMG Financial Performance Index (KPMG FPI)

We are pleased to share with you the fifth edition of our semi-annual KPMG Financial Performance Index (FPI) publication. We provide our insights into the changing state of corporate health across all Indonesian markets and sectors, following the end of the reporting season for the six months to September 2024. KPMG FPI data is refreshed on a monthly basis, with our analysis presented every six months. For more information, visit the KPMG FPI page.

Between March 2024 and September 2024, we observed a slight increase in the Indonesian KPMG FPI from 85.4 to 86.5. This denotes growth factors supporting in the financial corporate health of companies headquartered in Indonesia. As for sectoral health, 12 out of 18 sectors analyzed have shown an increase in the KPMG FPI score.

• Indonesia's economic landscape showed strong sectoral performance in Q3 2024, with travel and hospitality, consumer markets, and media & entertainment driving growth, underpinned by stabilizing inflation and increasing consumer purchasing power.
• Despite current complexities, Indonesia's massive market potential, young digital-first population, and central bank's strategic economic management create a promising growth runway, with opportunities for financial service expansion and economic restructuring.

• The overall growth in FPI score in Q3 2024 compared to Q1 2024 was primarily driven by the travel and hospitality (up by 5.6 points), consumer market (up by 4.6 points), and media & entertainment (up by 4.1 points) sectors.
• The travel and hospitality sector will continue to recover this year. Indonesia's tourism sector exhibited incremental recovery, with 9.1 million arrivals representing a 20% year-on-year increase. Current volumes remain 15% below 2019 pre-pandemic levels, indicating significant market expansion opportunities.
• As a growth driver, the consumer markets sector experienced an increase of 4.6 points, with growth attributed to an increase in consumer purchasing power as inflationary pressures ease. With CPI stabilizing at 1.8% and food and transport costs moderating, households can anticipate more disposable income. Bank Indonesia's policy rate reduction signals improved affordability, potentially stimulating demand for higher-value consumer goods.
• However, the energy sector witnessed a decline of 2.2 points. Indonesia's energy sector faces multifaceted challenges: declining oil production, regulatory uncertainties, and limited investment are deterring international energy companies. The slow renewable energy transition and continued fossil fuel reliance, as well as heavy dependence on coal exports, expose the sector to potential economic and environmental risks.
• The sub-sectors which enabled growth and decline for the Indonesian companies are hotel and lodging for travel and hospitality, household durables and retailers for consumer markets and for energy sectors the decline was contributed by Independent Power Generators, oil and gas and coal products sub-sectors.

• Indonesia's financial condition is at a turning point. With nearly 280 million people, the country represents a massive, untapped market with enormous potential. While the current financial system is accessible to largely the urban population, this limitation acts as a potential opportunity. Most of the population is yet to fully engage with banking, digital payments, and financial services, creating a wide-open runway for growth.
• The country's economic drivers are running steadily, with a consistent 5.1% annual growth projected over the next five years. The growth is primarily derived from its strong consumer spending, backed by rising incomes and an increasingly young, digitally empowered population. The central bank of Indonesia, Bank Indonesia (BI) is aligned while keeping inflation in check and creating a stable environment for businesses and consumers alike. Inflation averaged 3.7% in 2023, within the target range of 2-4% set for 2023 by BI. BI has lowered its inflation target to 1.5‑3.5% for 2024. With the central bank's surprise rate increase in late April and transitory inflation, the revised forecast for average inflation in 2024 projected at 3.2% to 2.6%.
• Banks and financial services organizations are crucial part of Indonesia’s growth story. While most of them are government/state-owned, they operate robustly like private institutions, creating a unique hybrid model. International banks from Japan and neighboring countries are increasingly seeing Indonesia as an attractive market. The delta, however, is the explosive growth of digital finance. Mobile payment apps, online lending platforms, and financial technology solutions are transforming how Indonesians interact with money, bringing financial services to people who were previously excluded.
• Looking ahead, Indonesia faces both exciting opportunities and significant challenges. The country must navigate complex government and bureaucratic structure and improve infrastructure in urban areas which in turn will act as a growth driver for companies which are operating in Transport and Logistics sector. 

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The KPMG FPI is a metric used to measure a company’s financial health by its ‘probability to default’. The analysis has been prepared using John Y. Campbell, Jens Hilscher, and Jan Szilagyi’s probability to default formula which takes into account financial information and market data. The KPMG FPI score ranges from 0 - 100. The lower the KPMG FPI score, the more likely a company is to default. In contrast, the higher the score, the less likely it is to default. In this analysis, released every three months, we analyze the KPMG FPI score movements of publicly listed companies in Indonesia (following the reporting season of full year and half year results) to draw insights into corporate health across the Indonesian economy.

KPMG FPI combines both market and financial information to determine a company’s relative financial distress levels. KPMG believes that combining the two types of information detects deteriorating corporate health more effectively than either source alone.